Economy

Will growth rebound in India in FY22?

Surabhi Mumbai | Updated on October 14, 2020 Published on October 14, 2020

 

India may see a sharp recovery in economic activity in 2021-22, but the prospects for the current fiscal remain subdued and highly uncertain after the International Monetary Fund and the Reserve Bank of India forecast a sharp contraction in GDP this fiscal.

In its World Economic Outlook, the IMF has said the Indian economy is projected to contract by 10.3 per cent in 2020 before rebounding by 8.8 per cent in 2021.

“Revisions to the forecast are particularly large for India, where GDP contracted more severely than expected in the second (June) quarter,” it noted.

Second revision

For India, this is the second downward revision by IMF after it cut its April forecast of 1.9 per cent to a 4.5 per cent contraction in June for 2020-21. “Second quarter GDP was weaker than projected, for instance, where domestic demand plunged following a very sharp compression in consumption and a collapse in investment (such as in India), where the pandemic continued to spread (such as in Mexico)…,” the IMF report noted.

This comes on the back of the RBI’s forecast of a 9.5 per cent contraction in real GDP growth, with risks tilted to the downside in the current fiscal, although it expects growth to come back out of contraction mode by the fourth quarter this fiscal.

 

“Real GDP growth for the first quarter of 2021-22 is placed at 20.6 per cent,” said the resolution of the Monetary Policy Statement.

The World Bank has projected a 9.6 per cent decline in economic growth this fiscal for India followed by 5.4 per cent positive growth in 2021-22.

A number of other agencies are also likely to review their growth projections for the economy for this fiscal year.

“We would also be reviewing our estimate of -8 per cent to - 8.2 per cent in the light of the views expressed by various agencies, including the RBI,” said CARE Ratings.

More clarity is likely when the Central Statistics Office releases its second quarter GDP data next month.

No clear picture

However, almost all analysts say that getting a clear picture of economic growth for next fiscal or beyond is difficult, given the uncertainties surrounding the Covid-19 pandemic, vaccine availability and further lockdowns.

The IMF expects global economic recovery to strengthen in 2021 to 5.2 per cent from a contraction of 4.4 per cent in 2020. But it expects growth to gradually slow to about 3.5 per cent into the medium term.

“This implies only limited progress towards catching up to the path of economic activity for 2020-25 projected before the pandemic for both advanced and emerging market and developing economies,” the report noted.

Further, in what could lead to significant concerns for India, the IMF report has also noted that the pandemic will reverse the progress made since the 1990s in reducing global poverty.

“...close to 90 million people could fall below the $1.90 a day income threshold of extreme deprivation this year,” it has warned.

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Published on October 14, 2020
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